The Department of Justice (DOJ) Antitrust Division has obtained its first criminal indictment based on an illegal conspiracy between two companies that agreed not to solicit each other’s employees — a so-called “no-poach” agreement. This marks a significant milestone — although the Antitrust Division has warned since 2016 that it would begin criminally prosecuting unlawful no-poach agreements, it has taken only civil action, until now. On January 7, 2021, the Division announced that Surgical Care Affiliates LLC (SCA), a surgical outpatient services company, had been charged with violating the federal antitrust laws for agreeing with its competitors not to solicit and hire each other’s senior-level employees.1 The case against SCA sets the precedent for future criminal cases involving antitrust violations in U.S. labor markets and should serve as impetus for companies to ensure their Human Resource professionals are well trained in antitrust compliance.
The Unique Role of HR and Recruiting Personnel in No-Poach Crimes
The criminal indictment, which was filed in the U.S. District Court for the Northern District of Texas, charges SCA with engaging in separate conspiracies with two other health care companies to suppress competition for senior-level employees, in violation of the Sherman Act.2 Specifically, SCA allegedly conspired with a Texas-based company and a Colorado-based company (both unidentified in the indictment) not to solicit senior-level employees from one another. The conspiracies allegedly lasted from May 2010 to October 2017 and from February 2012 to July 2017, respectively. According to the indictment, all three companies own and operate outpatient medical care facilities across the U.S.
Facts alleged in the indictment indicate that the illicit agreements were reached between the companies’ most senior executives, who then instructed internal HR personnel and outside recruiters to comply with the agreed-upon terms. For example, the companies’ CEOs reportedly took steps to monitor and enforce the agreements, including by:
- Instructing recruiters not to solicit senior-level employees from the co-conspirator companies. In one instance, an HR employee instructed a recruiter not to “reach out to SCA folks” and to take “any SCA folks off” its recruitment list. In another, an employee told a recruiter that she “can’t poach” a candidate she believed was employed by SCA.
- Requiring senior-level candidates to notify their current employer that they were seeking employment at the other company before considering the candidates’ applications.
- Alerting their co-conspirators about instances of recruitment of each other’s employees and taking steps to remedy the violations of the unlawful agreement, such as by declining to move forward with certain job applicants because of the conspiracy and contacting one another to complain when an external recruiter reached out to senior-level employees covered by the agreement.3
The involvement of HR personnel in implementing the conspiracy is significant. As we previously reported, in October 2016, the Antitrust Division and the Federal Trade Commission issued Antitrust Guidance for Human Resource Professionals, which warned companies that “naked” no-poach and wage-fixing agreements would be treated as “per se” illegal and criminally prosecuted under the antitrust laws, and therefore, companies should take steps to train HR employees on antitrust compliance. The “per se” illegality standard means that these agreements are automatically prohibited without any opportunity for the defendants to argue business justifications. Antitrust enforcers consider no-poach agreements to be a form of market-allocation agreements that “eliminate competition” for employment opportunities for the employees impacted. Both of SCA’s agreements are alleged to be such naked, per se unlawful agreements.
Criminal Focus Means Enhanced Penalties
Prior to the case against SCA, DOJ limited its enforcement actions against private no-poach agreements to civil proceedings. Now that no-poach agreements are subject to criminal prosecution, the penalties have become even more severe. Corporate antitrust crimes carry a maximum penalty of up to $100 million or twice the gain or loss caused by the conduct, whichever is greater. Individual defendants face penalties of up to $1 million and 10 years in prison.4
The SCA case is the Antitrust Division’s second criminal enforcement action involving unlawful employee agreements in the past two months alone. In December 2020, DOJ charged the former owner of a therapist staffing company for his alleged involvement in an employee wage-fixing conspiracy. Together, the cases demonstrate that the Antitrust Division is serious about detecting, prosecuting, and deterring employer collusion in U.S. labor markets. Indeed, as the head of the DOJ’s Antitrust Division, Assistant Attorney General Makan Delrahim warned in announcing the indictment that antitrust prosecutors will continue to work with law enforcement to “ensure that companies who illegally deprive employees of competitive opportunities are not immune from our antitrust laws.”5
Innovative and Thoughtful Compliance Programs More Important Than Ever
The SCA case also illustrates the importance of innovative and comprehensive antitrust compliance policies and training. The start of the new year — and of the new presidential administration, which will likely lead to amplified enforcement efforts, including in the antitrust arena — is a good time for companies to reevaluate their compliance programs and thoughtfully consider where improvements should be made. The SCA prosecution highlights the importance of providing HR professionals with antitrust training tailored to the types of misconduct they may encounter in their roles. Indeed, the SCA case provides an excellent case study on the specific types of agreements, communications, and other actions in the HR arena in particular that can give rise to serious antitrust violations. Using facts from actual prosecutions, such as the SCA case, is an effective compliance training tool. Companies also should consider whether the avenues for internally reporting possible misconduct are effective and whether such channels are realistically available to employees who may be aware of — and need to report — misconduct perpetrated by senior executives. Deterring misconduct is undoubtedly a key goal of a compliance program. An equally important goal is promptly detecting violations if they do occur. Under the Antitrust Division’s unique structure, companies that self-report possible misconduct may be eligible for immunity from prosecution, or significant mitigation credit.